According to a paper published last month by Christopher Reilly of Boston College, corporate bond ETFs listed in the US, on average, pay 48 basis points a year in hidden costs that result from custom creation baskets. Since most fixed ETFs track thousands of individual bonds, custom creation baskets allow issuers and authorized participants to create a sample of the holdings which mirror the performance of the ETF. An authorized participant is an organization, typically a bank, that manages the creation and redemption of ETF shares in the primary market. Without sampling, the authorized participants would have to source every security. However, the custom ETF creation baskets allow authorized participants more flexibility to include securities that could significantly underperform the underlying index. This customization results in hidden costs that investors of ETFs could incur.

Finsum: Corporate bond ETFs are paying an average of 48 basis points a year in hidden costs resulting from customized creation baskets.

2022 has seen one of the most volatile six-month stresses that hasn’t included a full-blown economic collapse. With the U.S. recession looming, Fed tightening, surging inflation, and international conflict all still very much in play investors need a volatility strategy. Most investors’ loss aversion keeps them out of market gains and a negative bias, and a low volatility strategy can curb those fears while allowing participation. This is a factor-based approach to investment where a considerable factor can be on stocks with more stable price movements in comparison to the rest of the market. Typically this strategy favors older, medium to large companies, with stable performance. If markets take a large hit many of these bear less of the losses, but they still can capture the rallies during high volatility.

Finsum: A momentum factor strategy has the advantage in low-interest rate booms, but favoring stable price movements might beat markets in this environment. 

The markets rally in response to the Fed’s latest tightening cycle, but it's the movement in combination with bonds that are potentially concerning. The longer end of the yield curve may not be realizing the extent of the Fed tightening with the 10-year rates falling in response. Analysts say this could be markets reading what they want from the Fed and not taking this phase of tightening seriously. This also could be the opposite, as the ten-two-year yield curve inverts, this could be the markets predicting a recession on the horizon, that is if the U.S. isn’t currently in one. Regardless, Powell made it completely clear that inflation is concern number one, and the Fed doesn’t believe the economy can function normally until inflation is tamed.

Finsum: There’s a possibility markets are happy there is a recession, because it could be the return to easy money and low rates. 

Available in a gaggle of shapes and sizes, fixed income securities are a staple of investor portfolios, according to etf.com.

They’re loans, of course, from the public investors to an institution in the market for cash. The borrowers and investors issue the bonds. Naturally, the investors expect to be reimbursed and compensated for the ability to tap into their money and the risk they’re assuming in extending the loan, the site continued.

Often, that compensation or the interest on the loan, is a regularly paid coupon. 

With net inflows of $910 billion into U.S.-listed ETFs, ETS had an unprecedented year in 2021, according to eftdb.com. That said, with the momentum taking a turn later in the year, ETFs experienced a spike in flows, which is expected to extend into this year – in the fixed income space particularly, stated Todd Rosenbluth, head of ETF and mutual fund research at CFRA.

Meantime, logic seemed to go somewhat out the window with U.S ETF flows through June in light of persistent hearty inflows given markets that were drastically toppling, according to insight.factset.com. Although stocks sagged nearly twice as much, stocks experienced healthier ETF inflows than bonds.

An active fixed income fund, which is an actively managed bond fund, socks money mainly in bonds, according to zurich.ie. They’re issued by eurozone governments and bond-based financial instruments. It doesn’t stop there, however. Additionally, they can be invested supranational bonds and other investment grade corporate and non-sovereign bonds.

Parachuting inflation has translated into tumultuous equity markets, prompting the Federal Reserve Board to hit the gas on interest rates, according to etftrends.com. Against that backdrop, the spotlight’s on both fixed income and active management. 

This shouldn’t prompt even a raised eyebrow, based on data. When markets were most turbulent in 2020 and 2021 --- more so in fact than they’ve been inn decades – not even half of almost 3,000 active funds experienced superior performances over their average passive counterparts during the 12 months through June of last year, based on Morningstar data. 

While passive equities strategies generally have gotten the best of active managers, active bond managers have returned the favor on passive fixed income strategies, according to a report from Guggenheim Investments. 

More broadly, the average active large cap equity fund manager’s gotten the upper hand on the S&P 500 86% of the time over the past decade, the site continued.